Place Your Bets: Risk Management and the Gaming Industry

By Cook, Diana R.; Meyer, Alan E. et al. | Risk Management, October 2004 | Go to article overview

Place Your Bets: Risk Management and the Gaming Industry


Cook, Diana R., Meyer, Alan E., Murray, Ruthanne, Skup, David A., Thilges, Nicholas P., Risk Management


The gaming industry provides an interesting example of an industry impacted by conflicting societal views, regulatory changes, technological growth and industry trends. According to the American Gaming Association, from 1992 through 2002, gross gambling revenue in the United States increased from $30.4 billion to $68.7 billion. In addition to fueling this increase in revenue, a number of key developments during the period have presented the industry with significant risk management challenges. All businesses face the risks that changing conditions present, but in the gaming industry, these factors clearly affect risk management strategies and lead to an increased focus in enterprise risk management. Expansion outside of Nevada, the proliferation of Native American casinos, the advent of online gaming and the threat of terrorism all make up a risk management landscape for gaming that has lead to the increasing use of enterprise risk management throughout the industry.

Leaving Las Vegas

Like many industries, the challenges related to growth opportunities create an array of risks. The expansion of casinos and other gaming establishments accelerated tremendously in the 1990s, and by the year 2000, casinos were present in 32 states. After 2000, however, the introduction of major new entertainment properties into new states began to slow. As a result, the industry has seen consolidations and mergers of mega-resorts, establishment of "racinos" (greyhound racetracks with slot machines), alignment with mega-mall sites, and expansion onto the Internet. Moreover, these developments have come at a time when Americans currently spend more money in casinos than on golf, the cinema, compact discs or cable television.

For years, state legislators have seen gaming as a source of revenue, job creation and overall economic growth and many have thus sought to create friendly environments for the industry. This has even led some Mississippi universities, for example, to propose new academic programs in gaming management. And today, some form of legalized gambling exists in all but two states--Utah and Hawaii.

Despite these positive indications, societal issues and increasingly organized opposition to gambling--especially from local environmental, political and consumer groups--continue to present challenges and obstacles to gaming expansion through new gaming resorts and properties. Despite increasing public acceptance, the overall perception that gaming has a negative societal impact continues to present an obstacle to corporate casino expansion outside of Nevada. Moreover, new economic studies show contradictory and inconclusive results regarding the extent to which additional economic value is actually added to the economy.

Additionally, recent research indicates an increase in gambling addiction and disorders in youth and senior citizens. The 2003 Global Gaming Exposition published a summary of conference sessions on gambling disorders, reporting that states are falling short in detecting youth-related problems, where the rate of disorder is significantly higher than among adults. Other social scientists equate gambling addiction with tobacco addiction and suggest the gaming industry may face similar large-scale lawsuits from states. On the environmental front, problems such as noise, traffic and damage to landscapes caused by new facility construction is well documented in studies conducted in Kentucky, Missouri and other states.

The gaming industry also faces regulatory and legislative changes. In December 2003, for example, federal legislation eased government access to the financial records of gaming customers. This new law is expected to have a significant impact on high rollers, many of whom desire strict privacy and as a result, may opt to play in international gaming markets rather than U.S. casinos. Organized citizens' groups in California have backed legislation limiting or restricting new gaming endeavors and others have filed lawsuits asserting that Native American tribes should not be able to expand beyond their tribal lands, in some states, gaming initiatives have received stiff resistance from the government, which competes for the same entertainment dollar.

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